COVID-19 offers lessons on catastrophe risk mitigation

COVID-19 offers lessons on catastrophe risk mitigation | Insurance Business

COVID-19 offers lessons on catastrophe risk mitigation

As the coronavirus pandemic continues to spread in North America, wildfires ravage the west coast of the continent, and the hurricane season is well underway, the discussion around resiliency in the face of catastrophes has grown even more relevant. In its latest report, “Keeping an eye on natural hazards: Lessons learned to become more resilient,” Zurich Insurance Group shone a light on the threat of compound risks and why a multiple-risk radar during the COVID-19 crisis is critical.

“What we can learn for natural hazards from COVID is, first of all, that there are still these high impact, low probability events, and we need to have them on our risk management radar,” said Michael Szönyi (pictured), Zurich’s flood resilience program lead. “COVID is a relatively rare, but high impact event, and it just reminds us that we need to prepare for those as well – not just focusing on the things that are more frequently occurring and that are easier to grasp mentally because we have them more available in our memory.”

On the other hand, COVID-19 has also revealed the interconnected nature of risks. For example, the coronavirus pandemic has resulted in lockdowns that restricted the free movement of travel, in turn toppling specific industries, such as the tourism industry. Similar patterns occur with natural hazards and their impacts on businesses. In 2011, following the earthquake and tsunami in Japan, technology manufacturers in the country faced widespread disruption, while hurricanes and wildfires more broadly can disrupt supply chains, lead to the evacuation of personnel, and require the implementation of business continuity plans.

As a result, the occurrence of natural catastrophes brings up the importance of risk mitigation for these threats – and, in reverse, similar conversations need to happen following the pandemic’s outbreak in order to map out risk reduction for the threat.

“One of the important lessons [from COVID] is that prevention is still better than only focusing on response and recovery when the event has already happened,” said Szönyi. “We know that $1 invested upfront in resilience building on average saves $5 in avoided losses, and though this number is specifically for floods, the general theme applies to other hazards as well. We must anticipate and better prepare, and it seems that, ahead of COVID, we were rather underprepared.”

The fact that hurricane and wildfire season is now overlapping with the coronavirus pandemic underscores how important compound risk mitigation is in today’s environment. Because of society’s general lack of preparedness for the pandemic, getting adequately prepared for and responding to wildfires and hurricanes in this new normal has become more complex.

In particular, said Szönyi, “With COVID-19 and floods, I think this overlap is particularly striking. You have a high density of vulnerable populations that need support in evacuation, and you can’t cram them into shelters when flooding needs to be attended to because of the physical distancing [required due to] COVID-19.”

COVID-19 has likewise reminded experts that certain risks are not always a top priority, but they may suddenly pop up from the sidelines, requiring there to be flexibility and contingencies built into risk management and business continuity plans. The key question then moving forward for the risk management community at-large is, how can they keep a broad enough risk radar to ensure that they see new and emerging risks, while making sure they don’t forget about those that are already known?

“How do we make sure we keep all these balls in the air juggling and how do we make sure we don’t drop one just because of a new risk?” explained Szönyi. “Climate change particularly comes to mind, and how do we make sure that commitments that have been made are kept? … At the same time, we need to find an economic recovery from COVID, and we need to make sure that we also strengthen the health system that in some countries were impacted by COVID.”

In fact, he added that the COVID-related economic recovery “is an opportunity” for managing the risks of climate change.

“We see a lot of voices on this right now, that the economic stimulus that must follow the COVID-19 problem can be a green and sustainable one, and if we invest in revamping the economy post-COVID, that we grasp this opportunity of making it climate-smart and risk-informed,” noted the Zurich expert.